Chapter 2 Supply Chain Performance: Achieving Strategic Fit and Scope

Competitive and Supply Chain Strategies
‡ Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services ‡ Product development strategy: specifies the portfolio of new products that the company will try to develop ‡ Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted ‡ Supply chain strategy: ± determines the nature of material procurement, transportation of materials, manufacture of product, distribution of product ± Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important

Accounting.The Value Chain: Linking Supply Chain and Business Strategy Finance. Information Technology. Human Resources New Product Development Marketing and Operations Sales Distribution Service .

Wall_Mart.Achieving Strategic Fit ‡ Strategic fit: ± Consistency between customer priorities that the competitive strategy hopes to satisfy and supply chain capabilities specified by the supply chain strategy ± Competitive and supply chain strategies have the same goals ‡ A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy ‡ Example of strategic fit ± Zara.Dell .

How is Strategic Fit Achieved? ‡ Step 1: Understanding the customer and supply chain uncertainty ‡ Step 2: Understanding the supply chain ‡ Step 3: Achieving strategic fit .

Step 1: Understanding the Customer and Supply Chain Uncertainty ‡ Identify the needs of the customer segment being served( 7-Eleven.Wall-Mart) ‡ Response time customers will tolerate ‡ Variety of products needed ‡ Service level required ‡ Price of the product ‡ Desired rate of innovation in the product ‡ Quantity of product needed in each lot .

Amazon. Dell .Step 1: Understanding the Customer and Supply Chain Uncertainty ‡ Demand uncertainty: uncertainty of customer demand for a product ‡ Implied demand uncertainty: resulting uncertainty for the supply chain given the portion of the demand the supply chain must handle and attributes the customer desires ‡ Nokia stores.

Step 1: Understanding the Customer and Supply Chain Uncertainty ‡ Implied demand uncertainty also related to customer needs and product attributes ‡ First step to strategic fit is to understand customers by mapping their demand on the implied uncertainty spectrum .

‡ Understanding the Customer ± Lot size ± Response time ± Service level ± Product variety ± Price ± Innovation Implied Demand Uncertainty .

Impact of Customer Needs on Implied Demand Uncertainty Customer Need Range of quantity increases Lead time decreases (Example Intel) Causes implied demand uncertainty to increase because « Wider range of quantity implies greater variance in demand Less time to react to orders Variety of products required increases Demand per product becomes more disaggregated Number of channels increases Rate of innovation increases Required service level increases Total customer demand is now disaggregated over more channels New products tend to have more uncertain demand Firm now has to handle unusual surges in demand .

2: The Implied Uncertainty (Demand and upply) pectrum .Levels of Implied Demand Uncertainty redictable supply and demand redictable supply and uncertain demand or uncertain supply and predictable demand or some hat uncertain supply and demand Highly uncertain supply and demand alt at a supermarket n existing automobile model ne communication device igure 2.

Stock out rate 1%-2% Avg.0% end markdown .Correlation Between Implied Demand Uncertainty and Other Attributes Attribute Product margin Low Implied Uncertainty Low High Implied Uncertainty High 40%-100% 10%-40% 10%-25% Avg. Forecast error 10% Avg. forced season.

Step 2: Understanding the Supply Chain ‡ How does the firm best meet demand? ‡ Dimension describing the supply chain is supply chain responsiveness ‡ Supply chain responsiveness -.ability to ± respond to wide ranges of quantities demanded ± meet short lead times ± handle a large variety of products ± build highly innovative products ± meet a very high service level .

Step 2: Understanding the Supply Chain ‡ There is a cost to achieving responsiveness ‡ Supply chain efficiency: cost of making and delivering the product to the customer ‡ Increasing responsiveness results in higher costs that lower efficiency ‡ cost-responsiveness efficient frontier ‡ supply chain responsiveness spectrum ‡ Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum .

7-Eleven .Step 3: Achieving Strategic Fit ‡ Step is to ensure that what the supply chain does well is consistent with target customer¶s needs ‡ Uncertainty/Responsiveness map ‡ Zone of strategic fit ‡ Examples: Dell.

Responsiveness Spectrum Highly efficient Integrated steel mill: Production Scheduled months In advance Somewhat efficient Somewhat responsive Highly responsive Hanes Most automotive 7-Eleven Changing Apparel: A make Production: Large Merchandize by To stock. lead time Variety in few weeks Time of day Of several weeks .

Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map Responsive supply chain Responsiveness spectrum Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand .

Step 3: Achieving Strategic Fit ‡ All functions in the value chain must support the competitive strategy to achieve strategic fit Two extremes: Efficient supply chains and responsive supply chains ± ‡ Two key points ± there is no right supply chain strategy independent of competitive strategy ± there is a right supply chain strategy for a given competitive strategy .

quality Greater reliance on responsive (fast) modes .Comparison of Efficient and Responsive Supply Chains Efficient Primary goal Product design strategy Pricing strategy Mfg strategy Inventory strategy Lead time strategy Supplier selection strategy Transportation strategy Lowest cost Min product cost Lower margins High utilization Minimize inventory Reduce but not at expense of greater cost Low Cost and quality Greater reliance on low cost modes Responsive Quick response Modularity to allow postponement Higher margins Capacity flexibility Buffer inventory Aggressively reduce even if costs are significant Speed. flexibility.

Other Issues Affecting Strategic Fit ‡ Multiple products and customer segments ‡ Product life cycle ‡ Competitive changes over time .

Multiple Products and Customer Segments ‡ Firms sell different products to different customer segments (with different implied demand uncertainty) ‡ The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments ‡ Two approaches: ± Different supply chains ± Tailor supply chain to best meet the needs of each product¶s demand .

cost is secondary ‡ Late: predictable demand. price is important . high margins (time is important). product availability is most important.Product Life Cycle ‡ The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle ‡ Supply chain strategy must evolve throughout the life cycle ‡ Early: uncertain demand. lower margins.

the supply chain changes from one emphasizing responsiveness to one emphasizing efficiency .Product Life Cycle ‡ Examples: Electronic equipments ‡ As the product goes through the life cycle.

Competitive Changes Over Time ‡ Competitive pressures can change over time ‡ More competitors may result in an increased emphasis on variety at a reasonable price ‡ The Internet makes it easier to offer a wide variety of products ‡ The supply chain must change to meet these changing competitive conditions .

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